Montgomery v. Soma Financial Corporation

This matter comes before the court on a motion to dismiss the second amended complaint ("SAC") by defendants Bank of America, N.A., as successor by merger to Countrywide Bank, FSB and BAC Home Loans Servicing, LP ("BAC"), Countrywide Home Loans, Inc. (the "Countrywide defendants"), and Bank of America Corporation[1] for itself and as successor by merger to Countrywide Financial Corporation (collectively, "defendants"). Dkt. # 32 at 2 n.2.[2]

On October 24, 2013, the court dismissed plaintiffs' first amended complaint because it was largely devoid of factual allegations specific to plaintiffs Dennis and Brenda Montgomery (the "Montgomerys") or Michael Flynn, contained numerous legal conclusions and conclusory allegations, went on at length regarding the allegedly improper practices of the mortgage industry in general, and the court could not discern the factual basis for plaintiffs' allegations as they were largely identical to those alleged in the District of Columbia case. United States v. Bank of America Corp., Case No. 12-361-RMC, District of Columbia, Dkt. # 1 at ¶¶ 47-89. Plaintiffs' SAC alleges claims for violation of the Consumer Protection Act ("CPA") with respect to loan servicing, loan modification, and foreclosure processing, violation of the Racketeer Corrupt and Influenced Organizations Act ("RICO"), and tortious infliction of emotional distress. Dkt. # 31. On April 29, 2014, the court ordered plaintiffs to file a redline copy of the SAC against the first amended complaint. Dkt. # 37. The court will refer to the redline copy of the SAC throughout this order. Dkt. # 38.

According to the complaint and documents subject to judicial notice, [3] plaintiffs allege the following:

(1) On September 5, 2006, the Montgomerys obtained a $2.28 million loan to purchase their Yarrow Point property that was secured by a deed of trust naming Chicago Title as Trustee and Mortgage Electronic Registration Systems, Inc. ("MERS") as the nominal beneficiary for the lender SOMA Financial. Dkt. # 38 (SAC) ¶ 2.1; Dkt. # 16-1 at 1-3 (Ex. A to McCormick Decl.).

(2) The Countrywide defendants merged into BoA, and ceased to exist. Dkt. # 38 (SAC) ¶¶ 2.4-2.6. BoA is the successor in interest to the Montgomerys' loan and its current servicer. Id.

(3) On June 26, 2009, the Montgomerys filed a petition for bankruptcy under Chapter 7. Id. ¶ 2.1. The Montgomerys' claims are limited to conduct that occurred after the filing of the petition. Id.

(4) With respect to their claim for violation of the CPA in loan servicing, Plaintiffs allege that BoA (a) failed to timely and accurately apply at least two mortgage payments made by the Montgomerys to Countrywide after BoA purchased Countrywide and took over operations; (b) charged excessive or improper fees for default-related services; (c) failed to properly oversee third-party vendors involved in servicing activities on behalf of defendants; (d) imposed force-placed insurance in the amount of $5, 000 in annual premiums without properly notifying the Montgomerys and when they already had coverage of $1, 700 in annual premiums, thereby unnecessarily increasing amounts due under the loan in terms of additional fees, charges, interest, and principal; and (e) provided the Montgomerys false or misleading information in response to their complaints. Id. ¶ 5.5a-e. With respect to the failure to timely and accurately apply mortgage payments, plaintiffs clarify, that it was BAC, as BoA's agent, that failed to timely and accurately apply mortgage payments and failed to maintain accurate account statements that resulted in account statements being in excess of what the Montgomerys actually owed. Id. ¶ 5.5a. The Montgomerys made at least two monthly mortgage payments totaling $34, 000, but BoA never applied these payments to its account balance, which resulted in BoA charging excessive late fees and interests. Id. The failure to apply these payments also resulted in the account balances showing that the Montgomerys were in default when they were not. Id. In BAC's motion for relief filed in the Montgomerys bankruptcy case, BAC represented that the Montgomerys had missed three mortgage payments totaling $44, 000 prior to filing for bankruptcy, when in fact they were not in default on the loan at all. Id. With respect to providing false or misleading information, plaintiffs allege that BoA represented that it would impose forced-place insurance that provided the same insurance they already had, which was false because the force-placed insurance did not cover liability and accident risks, but only casualty losses to the property itself. Id. ¶ 5.5e. The Montgomerys allege that they were harmed by this representation because they incurred $40, 000 liability as a result of an accident to a non-resident in 2012, and the insurance company that issued the force-placed insurance denied the claim due to lack of coverage. Id. Had BoA not made the representation that the force-placed insurance was the same as the coverage they were already paying for, they would have purchased their own liability insurance. Id.

(5) With respect to plaintiffs' claim for a violation of the CPA regarding loan modification, plaintiffs allege that defendants (a) represented to the Montgomerys from 2008 through 2013 that their loan documents were lost, that no one was sure who had authority to modify the loan or whether the loan qualified for modification, and that those representations were false because the loan documents were electronically stored in BoA's computers and available in late 2012; (b) represented that the Montgomerys qualified for loan modification and would be approved for loan modification, for which the Montgomerys had applied and provided all documents to prove eligibility, and that the pending modification would cure any default and reduce the principal and interest owed by them, and that those representations were false and caused the Montgomerys to incur debt and interest charges in excess of what they were entitled to under the modification programs; (c) encouraged and induced the Montgomerys to default on their loan in 2008 because they would only be eligible for loan modification if they defaulted on the loan. Id. ¶ 5.7a-c. Plaintiffs also allege that BoA (a) presented an inapplicable loan modification program they claimed would only remove interest and penalties, which was false because the Montgomerys were entitled to a full reduction of all principal and interest "because of systemic frauds involved in their Loan"; (b) failed to provide adequate staffing, training to staff, or processes for loan modification programs; (c) failed to respond to inquiries from the Montgomerys; (d) provided "false or misleading information" while referring their loan to foreclosure, initiating foreclosure during the loan modification process, or scheduling and conducting proceedings in bankruptcy; (e) represented that loss mitigation programs would provide relief from foreclosure, which was a misrepresentation, and failed to provide information regarding loss mitigation services, including loan modifications of full principal and interest; (f) advised that the Montgomerys must be at least 60 days delinquent in loan payments to qualify for a loan modification, which was false; and (g) represented that loan modification applications would be handled promptly, but delayed the loan modification for over three years. Id. ¶¶ 5.12a-s.[4]

(6) With respect to plaintiffs' claim for a violation of the CPA regarding foreclosure processing, plaintiffs claim that defendants (a) attempted to foreclose on the deed of trust after inducing the Montgomerys to default on their loan; (b) prepared, executed, filed or presented false, perjured, and misleading documents as part of its motion to lift the stay in the bankruptcy case; and (c) dual-tracked foreclosure and loan modification activities, and failed to communicate with the Montgomerys regarding foreclosure activities. Id. ¶ 5.19.

(7) On February 28, 2013, the trustee of the Montgomerys' estate entered into an Asset Purchase Agreement to sell the Yarrow Point property to plaintiff Flynn. Id. ¶ 2.2; Dkt. # 31 at 40 (Ex. 1 to SAC). Pursuant to that agreement, Flynn acquired all of the Montgomerys' interest in the Yarrow Point property together with any rights or claims for damages against the lender, servicer, and assignees that hold an encumbrance on the property. Dkt. # 31 at 40 (Ex. 1 to SAC at 6 ¶ 14.h). On April 4, 2013, the trustee executed a quit claim deed that transferred title to the property to plaintiff Flynn. Dkt. # 16-1 at 59 (Ex. D to McCormick Decl.).

When considering a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), "the court is to take all well-pleaded factual allegations as true and to draw all reasonable inferences therefrom in favor of the plaintiff." Wyler Summit P'ship v. Turner Broadcasting Sys., Inc., 135 F.3d 658, 663 (9th Cir. 1998). However, the complaint must indicate more than mere speculation of a right to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). "[F]or a complaint to survive a motion to dismiss, the non-conclusory factual content, ' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir. 2009). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009). Additionally, the court is not required to accept as true conclusory allegations that are contradicted by documents referred to in the complaint. Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1295 (9th Cir. 1998). Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). If the court dismisses the complaint or portions thereof, it must consider whether to grant leave to amend. Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000).

A. Article III Standing

To have standing under Article III, a plaintiff must demonstrate that (1) he has suffered an actual or threatened injury in fact; (2) the injury is causally connected to the conduct complained of; and (3) it is likely, and not merely speculative, that his injury will be redressed by a favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). The requisite injury-in-fact pursuant to Article III must be actual or threatened, and not merely speculative. See id. "In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues." Warth v. Seldin, 422 U.S. 490, 498 (1975). Standing "often turns on the nature and source of the claim asserted. The ...

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